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There are three basic year-end tax planning techniques that can be utilized to successfully manage income taxes: deferring income to the following year, accelerating deductions into the current year, and taking advantage of any expiring tax provisions. Examples of these types of tactics are holding off on selling investments with gains until later or paying tax deductions this year such as property tax or charity donations.
Taxpayers should also plan ahead for long-awaited tax changes that may occur in 2013. Under current tax law, all the tax rates will change for 2013. There have been various proposals to keep the tax rates the same or increase only the top two tax brackets. But so far those proposals have not passed into law. Accordingly, people may want to plan out their 2011 and especially their 2012 taxes with an eye towards the presumably higher tax rates that might go into effect in 2011. And this means that several traditional tax planning techniques need to be reversed. For example people may want to accelerate income into 2011 and 2012 in an attempt to lock in a known tax rate now instead of an uncertain or possibly higher tax rate in 2013. Similarly people may want to defer any tax deductions until 2013 so those deductions will offset future income at presumably higher rates, thereby squeezing extra tax dollars out of a deductible expense.
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